FY21 Core Net Profit (CNP) of RM200.4m exceeded our and consensus’ estimates by 5% and 13%, respectively, on higher CPO prices. The generous final dividend of 15.5 sen per share also exceeded Kenanga’s expectation. Looking ahead, CPO prices should ease but remain elevated, thus FY22E earnings and cashflows are expected to stay robust. Coupled with an already strong cash position, dividends are likely to stay flat for FY22 at 17.0 sen Maintain OUTPERFORM with TP unchanged at RM2.60.

Strong 4Q and FY21: FY21 ended with a high note on strong CPO prices. 4QFY21 enjoyed not only higher CPO price of RM5,103 (+18% QoQ, +62% YoY) but also saw an 11% QoQ pick-up in fruit production, though 4Q FFB output of 165K MT was actually down 7% on YoY basis. Full-year fruit production was also down 7% YoY at 593K MT but FY21 CNP and Core EPS grew strongly (+219% YoY) as CPO price surged 60% YoY to average at an estimated RM4,416 per MT for FY21.

A final DPS of 15.5 sen was declared, bringing the FY21 dividends to 17.0 sen per share in total, exceeding our expectation of 14.0 sen for the entire year.

Supportive CPO prices ahead: The global edible oil & fats market ended CY21 with only slightly higher inventories than a year earlier so supply of edible oils & fats is still tight. Sizeable soyabean harvest is ongoing in Latin American but poor weather is trimming earlier estimates for 2022 soyabean output while labour shortfall is a real concern for palm production in Malaysia. Nevertheless, edible oils & fats supply should improve progressively in 2022 but until inventories have actually improved, tight supply will be supportive for CPO prices in 1Q22 and increasingly into 2Q22 as well. Currently, we are expecting CPO prices to ease to about RM3,500 by the end of the year, giving an average CPO price of RM4,000-4,500 per MT for 2022. CPO prices are then expected to stay buoyant, averaging RM3,500 per MT in 2023.

Robust EPS and cashflows ahead: After two consecutive years of slow FFB output, fruit yields are expected to improve by 5% p.a. over FY22-23. Coupled with upgraded CPO price estimate of RM4,300 (vs. old estimate of RM3,500) , FY22 core EPS of 27.0 sen is now expected despite higher production cost and the prosperity tax. FY23 core EPS has also been revised up to 21.6 sen despite some easing in CPO price to circa RM3,500 per MT (vs. RM3,000 previously).

Strong financials: HSPLANT ended FY21 with net cash of RM368m (+81% YoY). Cashflows are thus expected to stay healthy with DPS of 17.0 sen and 13.0 sen estimated for FY22 and FY23, respectively.

Maintain OUTPERFORM and TP of RM2.60 with a target net dividend yield of 6.5% for FY22 as opposed to current yield of 7.2%. We like HSPLANT for its exposure to the upstream plantation sector which will benefit from current elevated CPO price. The Group also has one of the most liquid balance sheet in the plantation sector with surplus net cash of RM368m as at end-Dec21. Strong net cash position, good operating cashflows and long dividend payout record all make HSPLANT one of the most defensive plantation counter even when CPO price outlook is uncertain or volatile. For FY21, HSPLANT full-year dividend came to 17.0 sen after it announced a final dividend of 15.5 sen.

Key risks to our call are sharp CPO price decline, severe labour shortage, and significant rise in fertilizer/transportation costs.

Source: Kenanga Research - 24 Feb 2022